Photo: Gibran Mendes/FP

Good morning! This week, we explain the state of Brazilian public service. What will become of the president’s party, without the president? Brazil’s young, immature democracy. (This newsletter is for platinum and gold subscribers only. Become one now!)


The true situation of Brazil’s public service, in charts

Following the overhaul of Brazil’s pension system, the federal government

is now keen on revamping the country&#8217;s public service. The administration was set to announce its reform project two weeks ago alongside a <a href="https://brazilian.report/power/2019/11/06/paulo-guedes-wants-completely-reform-brazilian-state/">package by the Economy Ministry</a> to reshape the Brazilian state. The government, however, is hesitant, due to fears that the strong lobby of civil servants will spark violent protests such as the ones in Chile or Bolivia.</p> <p><strong>Why it matters.</strong> Brazil spends 13 percent of its GDP on the salaries and pensions of public servants, the 15th-most among 142 nations analyzed by the World Bank.</p> <p><strong>Not </strong><strong><em>that </em></strong><strong>big.</strong> Despite the huge expenditure, just over 12 percent of Brazilian workers are employed by public institutions. That is less than the average among OECD countries—and even more liberal, pro-market states, such as the U.S. and the United Kingdom.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/945917"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Decentralized.</strong> Over the past 20 years, Brazil has seen an explosion of municipal-level servants, while those at the state and federal levels remained somewhat stable. According to Brazil&#8217;s Institute of Applied Economic Research (Ipea), that trend is the result of a decentralization process, with municipalities being given more responsibilities over public policies.</p> <div class="flourish-embed" data-src="visualisation/945903"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Distortions.</strong> Despite the notion that civil servants earn supersalaries, that is hardly the case for them all. The wage gap between private workers and state- or municipal-level servants is narrower than the world average. Around half of municipal public servants earn up to BRL 2,000 (or two times the minimum wage). The major discrepancy, however, lies in the difference between the average salary or private workers and federal servants (96 percent). The highest wages are in the Justice system—with starting salaries of BRL 23,000.&nbsp;</p> <p><strong>Gender. </strong>Only 16 percent of the highest-ranked offices are occupied by women. Among lower-ranked ones, though, women account for 53 percent of servants.</p> <div class="flourish-embed" data-src="visualisation/945987"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Budget.</strong> From the budgetary standpoint, public servants are a costlier burden to state-level administrations. Eleven out of 27 spend over 60 percent of their budgets on salaries and pensions, going above the limit established by fiscal responsibility laws.</p> <div class="flourish-embed" data-src="visualisation/946050"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <p><strong>Dismissals.</strong> One of the key points in the government&#8217;s soon-to-be-presented reform is to end the undisputed job stability of public servants—making it easier for them to be dismissed. Today, only a court order or strict disciplinary processes can see public workers removed from their posts. Since 2003, just over 7,500 servants lost their job—mainly due to involvement with corruption.&nbsp;</p> <div class="flourish-embed" data-src="visualisation/946488"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <hr class="wp-block-separator"/> <h2>What will become of the Jair Bolsonaro&#8217;s party without Jair Bolsonaro?&nbsp;</h2> <p>President Jair Bolsonaro formally announced last week he is leaving the Social Liberal Party (PSL) to form his own far-right party—Alliance for Brazil, based on three core principles: &#8220;faith, honesty, and family.&#8221; Last year, PSL went from having one congressional seat to being the second-biggest party in the House and heralded as Brazil&#8217;s strongest right-wing force. Now, it is destined to quickly turn back and ride off into obscurity.</p> <p><strong>Context.</strong> As we&#8217;ve explained, the divorce between the party and Mr. Bolsonaro has a <a href="https://brazilian.report/power/2019/10/15/president-bolsonaro-feud-psl-party/">dispute for the party&#8217;s coffers</a> as its backdrop.</p> <p><strong>Why it matters.</strong> PSL has been the most reliable party for the government in Congress. Without its support, the whip count could become tougher. Moreover, members have publicly threatened to expose the president&#8217;s &#8220;hidden skeletons.&#8221;</p> <p><strong>From rags to riches &#8230; to rags.</strong> Unknown until 2018, PSL benefited from having Mr. Bolsonaro in its ranks—electing three governors and 52 congresspeople. But now, the party has become one of the most hated groups in Brazilian politics. A poll by Ibope shows that 50 percent of voters would not choose a PSL candidate in any situation whatsoever. Even more importantly: 27 percent of voters who approve of Jair Bolsonaro&#8217;s administration would no longer vote for PSL.</p> <p>Just one year after amassing 11.6 million votes for its congressional candidates, PSL has today a solid support rate of only 12 percent—against the Workers&#8217; Party&#8217;s 27 percent.</p> <p><strong>Legal issues.</strong> Besides losing Mr. Bolsonaro, PSL faces investigations that party executives embezzled campaign funds using dummy candidates in the states of Pernambuco and Minas Gerais.&nbsp;</p> <p><strong>Rebranding.</strong> For 2020 and beyond, PSL plans to brand itself as the &#8220;new right.&#8221; The definition is marketing language for celebrating alliances with groups such as governors João Doria (São Paulo) and Wilson Witzel (Rio), who have become nemesis of Mr. Bolsonaro&#8217;s.</p> <hr class="wp-block-separator"/> <h2>Markets</h2> <p>Shareholders of retail giant Via Varejo (<a href="https://www.investing.com/equities/via-varejo-sa-historical-data">VVAR3</a>) have been on a rollercoaster. Last week, shares crashed 9 percent as news broke that the company is investigating a whistleblower&#8217;s claim about fraudulent earnings reports (where, allegedly, OpEx<sup>[1]</sup> was reported as CapEx*). But the company bounced back, closing up by 5.7 percent in the week. BTG Pactual analysts say that, despite weak Q3 results, the company has a positive outlook, thanks to its sheer scale of brick and mortar stores. Their recommendation on Via Varejo is a neutral one, as they highlight challenges to revamp its e-commerce platform and built a more robust multichannel business model.</p> <p style="text-align:center"><strong><em>Natália Scalzaretto</em></strong></p> <p>*<em>CapEx: Capital expenditure, when a business acquires assets that could be beneficial beyond the current tax year. OpEx: Operational expenditure, those that a business incurs to run every single day.</em></p> <hr class="wp-block-separator"/> <h2>A republic yet to be developed</h2> <p>On November 15,<a href="https://brazilian.report/power/2019/11/15/130-years-later-brazil-republic-remains-draft/"> the Brazilian Republic celebrated 130 years</a>, marked by numerous coups and political ruptures. One thing stands out: political shifts in Brazil, whether democratic or not, come after dire recessions. “That has a lot to do with how Brazilian financial elites work. They rely terribly on the state for getting financial perks, tax breaks, and such. And when this crony capitalism fails, these same elites sponsor breaks with the established order,” ponders Roberto Romano, a philosopher at the University of Campinas.</p> <div class="flourish-embed" data-src="visualisation/945821"></div><script src="https://public.flourish.studio/resources/embed.js"></script> <hr class="wp-block-separator"/> <h2>Looking ahead</h2> <p><strong>Justice.</strong> On Wednesday, the Supreme Court should decide whether or not investigations can use financial information flagged as &#8220;suspicious&#8221; by anti-money laundering agencies when this data is provided without a court order. These reports are usually the starting point of a probe, from which investigators will look for evidence of wrongdoing before getting authorization for thorough access to financial statements. But in July, Chief Justice Dias Toffoli suspended all 700 probes currently using such information—following a request of Senator Flávio Bolsonaro, the president&#8217;s eldest son, himself under investigation for money laundering. The court is leaning towards restricting, but not forbidding entirely, the use of such information.</p> <p><strong>Deforestation.</strong> Today, the National Institute for Space Research (Inpe) is set to publish the official Amazon deforestation numbers for 2019. Experts believe that the results will show that, between August 2018 and July 2019, Brazil lost between 9,000 and 11,000 square kilometers of native forest—the worst result in a decade. The Bolsonaro administration has faced heat for its laissez-faire stance on the environment, and it has minimized official stats.</p> <p><strong>Congress 1.</strong> President Bolsonaro will face its first test since formally breaking up with his PSL party. Congress votes on a decree creating the Doctors Around Brazil program—created to replace the use of Cuban doctors in remote locations. The decree shall expire next week.</p> <p><strong>Congress 2.</strong> The Senate scheduled for tomorrow its second-round vote on a &#8220;new&#8221; pension reform. The bill includes state- and municipal-level servants in the new rules, and was presented separately from the original bill to avoid delays. The first vote passed without hiccups, with a 56-11 majority in favor of the bill.</p> <p><strong>Employment.</strong> Tomorrow, Brazil&#8217;s official statistics agency publishes an important indicator of the current situation of labor in the country. It brings more data to explain a current Brazilian phenomenon: the slow drop of unemployment rates, combined with record levels of informal labor, that is, lower-paying jobs that require almost no skill). That trend has pushed productivity levels—wealth generated per hour of work—down by 1.1 percent in Q1 and 1.7 percent in Q2. In a healthy economy, with investments in innovation, the trend is upwards.</p> <p><strong>Oil spill.</strong> Researchers at the Federal University of Alagoas said yesterday they have identified the vessel responsible for the massive oil spill that has haunted the Brazilian coast since September. They didn&#8217;t disclose its name yet—but say it is not the <a href="https://brazilian.report/society/2019/11/02/greek-ship-bouboulina-caused-brazil-oil-spill/">Greek oil tanker</a> the Navy pointed out as the culprit. According to these new findings, the spill happened around July 19. The revelations will be forwarded to the Senate on Thursday, when a hearings committee will meet.</p> <p><strong>Left.</strong> <a href="https://brazilian.report/podcast/2019/11/13/85-how-lulas-story-explains-brazil/">Former President Lula&#8217;s Workers&#8217; Party</a> holds its annual congress on November 22–24. It will discuss strategy and choose a new directing board—with current chairperson Gleisi Hoffman favored to win another term. Lula has shown he is not ready to treat allied left-wing parties as equals. In a speech, he said his Workers&#8217; Party &#8220;wasn&#8217;t created to be in a supporting role,&#8221; and that it will launch its own candidates in as many cities as possible, come the 2020 municipal elections. Lula&#8217;s unwillingness to share the limelight divided the left in the 2018 presidential race, helping to pave the way for Jair Bolsonaro&#8217;s landslide win.&nbsp;</p> <hr class="wp-block-separator"/> <h2>In case you missed this</h2> <p><strong>BRICS.</strong> Last week, Jair Bolsonaro hosted the <a href="https://brazilian.report/power/2019/11/13/ten-years-brics-looks-more-like-china-and-co">11th BRICS Summit in Brasília</a>. The event marked a rapprochement between the Brazilian leader and his Chinese counterpart, Xi Jinping. Brazil and China signed nine accords and memoranda of understanding—and Economy Minister Paulo Guedes said Brazil and China have initiated talks over a possible trade deal.&nbsp;</p> <p><strong>Aviation.</strong> Brazilian planemaker Embraer announced new firm orders for six jets. One of the deals is with Nigeria&#8217;s Air Peace, for three E195-E2 models. The other came from the Egypt-based CIAF Leasing, for E190 aircraft. The orders are worth USD 374 million. There is currently uncertainty surrounding Embraer due to the crisis that hit Boeing. The American planemaker took over Embraer&#8217;s commercial jet division—but faces its worst crisis, after two <a href="https://brazilian.report/newsletters/weekly-report/2019/03/30/737-max-brazil-only-country-demand-specific-training/">737 MAX planes crashed</a> due to system malfunctions.&nbsp;</p> <p><strong>Protests.</strong> Conservative groups called for protests on Sunday to ask for the impeachment of Supreme Court Justice Gilmar Mendes. The move came after he changed his views on whether convicted felons can exhaust all appeals outside prison—a ruling that set former President Lula free. But while the outrage drew a huge online mobilization, demonstrations on the street were far from massive.&nbsp;</p> <p><strong>Chile.</strong> After weeks of violent protests and dozens of deaths, the Chilean government has agreed to hold a referendum to replace the country&#8217;s constitution next year. The current charter was enacted in 1980 by the late dictator Augusto Pinochet—a document based on ultra-liberal economics, which doesn&#8217;t establish education and healthcare as basic rights the state must provide. &#8220;This agreement is a first step to build a new social pact,&#8221; said Chile&#8217;s Interior Minister Gonzalo Blumel.</p> <p><strong>F1.</strong> São Paulo hosted the F1 Brazilian Grand Prix <a href="https://www.reuters.com/article/us-motor-f1-brazil/verstappen-wins-brazil-gp-thriller-as-ferraris-collide-idUSKBN1XR0QR">this weekend</a>—the city&#8217;s <a href="https://brazilian.report/money/2019/07/29/formula-1-impact-sao-paulo-economy/">most significant event for international tourism</a>. However, the future of F1 in Brazil is anything but certain. São Paulo negotiates an extension to keep the race in the city beyond 2020, but parties seem to have reached a deadlock. Moreover, Rio de Janeiro could have its own circuit, and bid for the right to host the Brazilian GP.

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BY Gustavo Ribeiro

Gustavo is the founder of The Brazilian Report, and is an award-winning journalist with experience covering Brazilian politics and international affairs. His work has been featured across Brazilian and French media outlets.